Bangko Sentral ng Pilipinas building INQUIRER FILE PHOTO
Although prices likely rose by a faster pace this month, the price pressures were largely driven by demand shocks that would not warrant a response from monetary officials, according to the Bangko Sentral ng Pilipinas (BSP).
In a statement to reporters, BSP Governor Amando M. Tetangco Jr. said local supply disruptions and higher oil prices resulted in higher prices of commodities such as garlic and rice.
“The relevant government agencies are addressing these supply bottlenecks,” Tetangco said, explaining that the steps taken by concerned officials should help moderate the upward pull on prices.
Inflation, or the average year-on-year rise in the prices of major commodities, accelerated to 4.5 percent last month—the fastest in two and a half years. It almost reached the top end of the central bank’s target of 3 to 5 percent for 2014.
The BSP expects inflation to average at 4.4 percent in 2014—faster than last year’s average of 3 percent.
Global oil prices have been increasing of late partly because of the spreading conflict in Iraq, Tetangco noted.
“This is as a key source of risk to inflation as oil represents a major input cost in the production of most commodities,” he said.
The central bank is now keeping a close watch on evolving price and output dynamics, he added.
“The BSP stands ready to undertake policy actions … to prevent inflation expectations from unraveling. At the same time, the BSP continues to support supply-side administrative responses that directly address … bottlenecks,” Tetangco explained.
BDO chief market strategist Jonathan Ravelas said Tetangco’s statement this week could be a signal to market players that interest rates would be kept at their record lows.
Speculation is rife in the private sector on when the BSP will make adjustments to its benchmark overnight borrowing and lending rates, which currently stand at 3.5 and 5.5 percent, respectively.
In its last three policy meetings, the BSP tightened monetary settings by initiating measures aimed at mopping up liquidity from the economy. In April and May, banks were told to set aside more of their clients deposits as idle reserves. This month, rates on special deposit accounts were hiked from record lows.
The central bank is “just preparing the market,” Ravelas said in an interview yesterday. Policy rates “may not be raised yet because these are supply-side pressures. What we should fear is demand-driven inflation … because that’s caused by excesses. What happens in the supply-side is not our fault.”